Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Cidara Therapeutics Inc (NASDAQ:CDTX).
Is CDTX a good stock to buy? Hedge fund interest in Cidara Therapeutics Inc (NASDAQ:CDTX) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that CDTX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as S&W Seed Company (NASDAQ:SANW), Meten EdtechX Education Group Ltd. (NASDAQ:METX), and Eyenovia, Inc. (NASDAQ:EYEN) to gather more data points.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Ken Griffin of Citadel Investment Group
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to view the latest hedge fund action regarding Cidara Therapeutics Inc (NASDAQ:CDTX).
Do Hedge Funds Think CDTX Is A Good Stock To Buy Now?
At the end of March, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in CDTX over the last 23 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in Cidara Therapeutics Inc (NASDAQ:CDTX) was held by Biotechnology Value Fund / BVF Inc, which reported holding $9.9 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $2.2 million position. Other investors bullish on the company included Dorset Management, Two Sigma Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position Dorset Management allocated the biggest weight to Cidara Therapeutics Inc (NASDAQ:CDTX), around 0.47% of its 13F portfolio. Biotechnology Value Fund / BVF Inc is also relatively very bullish on the stock, designating 0.37 percent of its 13F equity portfolio to CDTX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: HighVista Strategies. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let’s check out hedge fund activity in other stocks similar to Cidara Therapeutics Inc (NASDAQ:CDTX). These stocks are S&W Seed Company (NASDAQ:SANW), Meten EdtechX Education Group Ltd. (NASDAQ:METX), Eyenovia, Inc. (NASDAQ:EYEN), Inmune Bio Inc. (NASDAQ:INMB), Venus Concept Inc. (NASDAQ:VERO), Ampco-Pittsburgh Corp. (NYSE:AP), and Clipper Realty Inc. (NYSE:CLPR). All of these stocks’ market caps match CDTX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SANW | 7 | 78119 | 1 |
| METX | 2 | 772 | -1 |
| EYEN | 6 | 3811 | 2 |
| INMB | 3 | 3477 | 1 |
| VERO | 7 | 13082 | 3 |
| AP | 4 | 21161 | -1 |
| CLPR | 7 | 18630 | 0 |
| Average | 5.1 | 19865 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.1 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $14 million in CDTX’s case. S&W Seed Company (NASDAQ:SANW) is the most popular stock in this table. On the other hand Meten EdtechX Education Group Ltd. (NASDAQ:METX) is the least popular one with only 2 bullish hedge fund positions. Cidara Therapeutics Inc (NASDAQ:CDTX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDTX is 57.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately CDTX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on CDTX were disappointed as the stock returned -25.2% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Cidara Therapeutics Inc. (NASDAQ:CDTX)
Follow Cidara Therapeutics Inc. (NASDAQ:CDTX)
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Disclosure: None. This article was originally published at Insider Monkey.
